Explain digital token based electronic payment system

The digital token based payment system is a new form of electronic payment system which is based on electronic tokens rather than e-cheque or e-cash. The electronic tokens are generated by the bank or some financial institutions. Hence we can say that the electronic tokens are equivalent to the cash which are to be made by the bank.

Categories of Electronic Tokens:-

I. Cash or Real Time:-In this mode of electronic tokens transactions takes place via the exchange of electronic currency (e-cash).

2. Debit or Prepaid:- In this electronic payment system the prepaid facilities are provided. It means that for transactions of information user pay in advance. This technology are used in smart card, electronic purses etc.

3. Credit or Postpaid;- These types of electronic token based on the identity of customers which issue a card, their authentication and verification by a third party. In this system the server authenticate the customers and then verify their identity through the bank. After all these processing the transaction take place. Example is E-Cheques.

The Digital Token based system have following issues for which they are established:-

1. Nature of transaction for which instrument is designed:-In this category, the design issues of token take place. It may be designed to handle micro payments. It may be designed for conventional products. Some tokens are designed specifically and other generally. The design issue involve involvement of parties, purchase interaction and average amount.

2. Means of Settlement:- The Digital Tokens are used when their format must be in cash, credit, electronic bill payments etc. Most transaction settlement methods use credit cards while other used proxies for values.

3. Approach to Security, Anonymity and Authentication:-Since the electronic token are vary from system to system when the business transaction take place. So it is necessary to secure it by intruders and hackers. For this purpose various security features are provided with electronic tokens such as the method of encryption. The encryption method use the digital signatures of the customers for verification and authentication.

4. Risk Factors:-The electronic tokens may be worthless and if the customer have currency on token than nobody will accept it, If the transaction has long time between delivery of products and payments to merchants then merchant exposes to the risk. so it is important to analysis risk factor in electronic payment system.

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